Tax benefits not equal for domestic partners

February 17, 2012|Tribune Newspapers

Delaware and Hawaii this year began to recognize civil unions, and Washington in mid-February legalized same-sex marriages, joining a growing list of states that have enacted or are considering laws for civil unions, domestic partnerships or same-sex marriages.

About a dozen states allow same-sex couples to file joint state tax returns and decrease their state tax liabilities, according to a survey by the Tax Institute at H&R Block. That includes same-sex couples married in California within a roughly five-month period in 2008 before state voters passed Proposition 8, which banned same-sex marriages. A federal appeals court in early February found the state's gay marriage ban unconstitutional, and the issue could be headed for the Supreme Court.

But the U.S. government doesn't allow same-sex couples to file joint federal returns, depriving them of benefits enjoyed by heterosexual couples and costing them up to $6,000 a year in extra taxes, according to a CNN report in December.

The Tax Institute analyzed five same-sex-couple scenarios of varied family incomes, child tax credit considerations and state laws, among other things. It noted factors that tend to increase federal tax liabilities of same-sex spouses compared with married couples filing jointly:

Same-sex couples can't combine their income and deductions.

For same-sex couples, an employer's cost of health insurance for a covered partner who isn't considered a dependent is taxable income for the employee, so a greater amount of income is taxable.

Phaseouts of adjusted gross income are usually lower for single and head-of-household filers than for married-filing-jointly filers, so some same-sex spouses lose out on credits.

The Tax Institute also pointed out that, in some states that allow same-sex couples to file jointly, couples must prepare four tax returns: a joint state return, two separate federal returns and a mock joint federal return, submitted with the joint state return. The reason for the mock joint federal return is that most states base their joint-return computations on the figures from the mock joint federal return, the institute says.

"That return is not filed but is a way of creating a starting point for the state return," said Gil Charney, principal tax analyst at the Tax Institute.

To find links to the tax agencies of the states, plus the District of Columbia, that allow same-sex couples to file joint state returns, visit tinyurl.com/7z4czej.

The institute also noted that same-sex spouses in higher tax brackets may benefit from single status.